When we talk about life insurance, we often hear the terms nomination and assignment. The former refers to the appointment of a person, to receive the proceeds upon the demise of the policyholder, whereas the latter implies the legal transfer of rights to the benefits of the policy to another person, i.e. assignee.
In the nomination, the property or amount secured by the policy remains at the disposal of the assured, till the time he/she is alive and the person appointed as the nominee is only for beneficial interest. On the other hand, in assignment the assets or policy amount passes to the assignee, as he/she gets the title or ownership and interest of the policy. Check out the given article to know the differences between nomination and assignment.
Content: Nomination Vs Assignment
|Basis for Comparison||Nomination||Assignment|
|Meaning||Nomination implies appointment of a person, by the policy holder to receive the policy benefits, on the event of death.||Assignment, alludes to, ceding of right, title and interest of the policy to another person.|
|Attestation||Attestation is not required in nomination.||Attestation is required in assignment.|
|Consideration||It does not involve consideration.||It may involve consideration.|
|Right to sue||Nominee has no right to sue under the policy.||Assignee has the right to sue under policy.|
|Purpose||To help beneficiary recover the policy amount when it becomes due for payment.||To transfer all rights and interest in favor of the assignee.|
|Revocation||Can be changed or revoked several times.||Can be revoked one or two times during the term of policy.|
|Favor||Generally, made in favor of immediate relatives.||Can be made in favor of immediate relatives or to external party.|
Definition of Nomination
In Life Insurance, nomination can be understood as a facility, which allows the policyholder or say insured to nominate a person, who can claim the policy amount, in the event of death of policyholder. If, in case, a minor is appointed as nominee, then a major should be specified, in order to receive the money secured by the policy, upon the demise of the insured.
The policyholder can make nomination either at the time of purchasing the policy, or anytime before the expiry of the term. The policyholder is allowed to change the nomination, during the term of the policy, by making a fresh nomination, which should be incorporated, either through text in the policy or through an endorsement to the policy, to become effective.
When the policy matures while the insured is alive or when the nominee dies prior to the maturity of the policy, the policy amount is paid to the policyholder, or his/her legal heir or representative.
Definition of Assignment
Assignment, as the name suggest is the legal transfer of rights from the policyholder to the assignee to receive benefits indicated in the insurance agreement. It is usually made out of love and affection with the family members or for adequate consideration to any outside party.
The assignment can be made either through an endorsement upon the policy or separate instrument, duly signed by the assignor or his agent. The signature is required to be witnessed by at least one person competent to contract. It becomes effective from the date when the documents are received by the insurance company in proper order.
In general, space for endorsement is given in the policy document to enable the holder affix the assignment statement, along with reasons for the same.
The benefits in the policy arise as a result of survival and death benefits. All life insurance policies provide death benefits, but survival benefits are concerned with maturity benefits under the policy that involves a hidden investment component.
Key Differences Between Nomination and Assignment
The difference between nomination and assignment can be drawn clearly on the following grounds:
- The appointment of an individual by the assured to receive the amount secured by the policy, upon the demise of the assured is known as a nomination. On the other hand, assignment refers to cede the right, ownership, and interest in the policy to another person.
- In the nomination, there is no requirement of attestation by the witness. Conversely, attestation by at least one witness is required in case of assignment.
- In the nomination, there is no such thing like consideration. In contrast, the assignment can be with or without consideration.
- Nomination does not entitle nominee the right to sue under the policy. On the contrary, assignment entitles the assignee the right to sue under the policy.
- The nomination is made to help beneficiary recover the policy amount when it becomes due for payment. As against this, assignment aims at transferring all rights and interest in favor of the assignee.
- Nomination can be revoked or changed several times, whereas assignment can be canceled only one or two times during the policy term.
- The nomination is made in favor of immediate relatives. As opposed, assignment is made in favor of immediate relatives or to external party.
By and large, a nomination only accentuates the hands, to whom the policy amount is to be paid on the death of the assured, so that the insurance company gets the valid discharge of liabilities, as per the policy. Nevertheless, the amount can be claimed by the legal heirs of the policyholder.
The assignment is generally made by the policyholder out of love for the immediate relatives or even for certain consideration from an external party. Assignment without consideration to an external party is subject to detailed scrutiny, as it is seen as a possible way of money laundering.